topic Re: will current 401K loan impact loan approval? in Mortgage Loans

will current 401K loan impact loan approval?

Anonymous — Wed, 09 Nov 2011 18:57:41 GMT

I'm curious about this. I am considering taking out a personal loan from my 401K. I know, I know....it's a bad idea. But I'd like to take out a 1,000 loan now and then take out another loan to help with a down payment on a home. will having these loans impact my loan approval?

Re: will current 401K loan impact loan approval?

boomhower — Wed, 09 Nov 2011 20:23:20 GMT

Most programs will only allow for one oustanding loan at a time so check that. It will count against your DTI like any other loan but other than that it shouldn't make much difference.

Re: will current 401K loan impact loan approval?

Walt_K — Wed, 09 Nov 2011 23:37:34 GMT

@boomhower wrote:
Most programs will only allow for one oustanding loan at a time so check that. It will count against your DTI like any other loan but other than that it shouldn't make much difference.

For most loans, 401K loans do not count against DTI. Here is a thread discussing it. http://ficoforums.myfico.com/t5/Mortgage-Loans/401K-Primary-Residence-Loan/m-p/698927/highlight/true#M69276

Re: will current 401K loan impact loan approval?

good_credit — Thu, 10 Nov 2011 00:10:06 GMT

It should not. Howver, the UW would want to know the condtions of the loan e.t.c

Most UW also want to know the source of monies...

Re: will current 401K loan impact loan approval?

pizzadude — Thu, 10 Nov 2011 02:34:00 GMT

The loan will not appear anywhere on your credit report as you are essentially borrowing from yourself.

Re: will current 401K loan impact loan approval?

Anonymous — Sat, 12 Nov 2011 18:13:15 GMT

Anyone who tells you it will count towards your DTI has never done a 401k loan before. It's all on your paycheck, its not reported to credit, its not an "official" loan so no it will not count.

Re: will current 401K loan impact loan approval?

boomhower — Sat, 12 Nov 2011 18:44:51 GMT

@pizzadude wrote:

The loan will not appear anywhere on your credit report as you are essentially borrowing from yourself.

yes but it's going to be all over the OP's paystub which they will most certainly have.

Re: will current 401K loan impact loan approval?

Walt_K — Sat, 12 Nov 2011 20:13:52 GMT

@boomhower wrote:
@pizzadude wrote:

The loan will not appear anywhere on your credit report as you are essentially borrowing from yourself.
yes but it's going to be all over the OP's paystub which they will most certainly have.

I'm pretty sure the issue is not whether the LO will know about the loan. It doesn't count in DTI because it is secured by your own assets. That is my understanding anyway from what I have read.

Re: will current 401K loan impact loan approval?

IOBA — Sun, 13 Nov 2011 00:52:43 GMT

Maybe Shane or one of the other mortgage guys can pop in and offer some clarification.

The best suggetion I would have for OP and anyone else who is curious --- call your lender and ask.

IMO, it is a debt that needs to be paid back and the amount is deducted from your gross pay and should be considered in the big picture.

And for the OP - check to see if you can take out multiple loans from your 401K. Most only allow one loan in a certain time period. And it would need to be paid back in full before they would consider allowing you to do another loan. And why would you need to borrow money now from it, and then later for a down payment? As tough as it may be, the better option might be to wait a bit longer and try to save up some of the money needed for down payment on your own, without having to borrow it from your retirement.

DH's employer will allow only ONE loan within a 2 yr period. And you must have paid back the first loan first, 24 months must have passed since the first loan was taken out, and there must be at least 6 months in between the last payment made and a new application. Definitely check with your employer!

Re: will current 401K loan impact loan approval?

Booner72 — Sun, 13 Nov 2011 01:23:29 GMT

One of the few conditions that came back from my UW was wondering what an extra deduction out of my paycheck was. It was extra taxes I pay. They even had to get a letter from my payroll person on letterhead explaining what it was. I believe this went against my DTI but I was still within the guideline. This was an easy fix as I could have changed my W2 right away.

I'd ask before doing this.

Re: will current 401K loan impact loan approval?

Walt_K — Sun, 13 Nov 2011 05:29:46 GMT

@IOBA wrote:
Maybe Shane or one of the other mortgage guys can pop in and offer some clarification.

The best suggetion I would have for OP and anyone else who is curious --- call your lender and ask.

IMO, it is a debt that needs to be paid back and the amount is deducted from your gross pay and should be considered in the big picture.

And for the OP - check to see if you can take out multiple loans from your 401K. Most only allow one loan in a certain time period. And it would need to be paid back in full before they would consider allowing you to do another loan. And why would you need to borrow money now from it, and then later for a down payment? As tough as it may be, the better option might be to wait a bit longer and try to save up some of the money needed for down payment on your own, without having to borrow it from your retirement.

DH's employer will allow only ONE loan within a 2 yr period. And you must have paid back the first loan first, 24 months must have passed since the first loan was taken out, and there must be at least 6 months in between the last payment made and a new application. Definitely check with your employer!

See the link I included above. Shane's response was that it doesn't count for DTI.

Re: will current 401K loan impact loan approval?

IOBA — Sun, 13 Nov 2011 23:57:30 GMT

Thanks Walt_K.